Soft landing strategy for China's high-flying economy
By Peng Wenyan (chinadaily.com.cn)
Updated: 2004-05-21 16:25

Is China's economy over-heating? On May 21, a number of world-renowned scholars and senior officials gathered at the China Economic Summit 2004 at the Great Hall of the People, addressing their views on the problem to hundreds of audience.

Among them were Robert A Mundell, Nobel Prize winner and father of the euro; Zhou Xiaochuan, governor of the China People's Bank; Cheng Siwei, vice-chairman of the Standing Committee of China's National People's Congress; Shang Fulin, chairman of the China Securities Regulatory Commission; Hu Zuliu, managing director of Goldman Sachs Asia; and Lin Yifu, director of the China Center for Economic Research at Peking University. 

 
Mundell stated that China needed a different model from his past theoretical models because those models did not fit for the situation in China. In China, supply is elastic, and there is no labor shortage. Current price increase is partly due to the decline of dollar against other currencies. China's growth is not high excessively relative to its past performance.

He analyzed China's existing monetary system. China has had fixed rate anchor to the dollar for ten years. China has successfully resisted the international pressure to devalue or float its currency during the Asian crisis. Fixed anchor has brought China price stability since 1997 better than that archived by G-7 countries using inflation-forecast targeting.

Thus he concluded that floating currency was not a mechanism for achieving monetary stability. He also pointed out ten negative results of substantial appreciation of RMB, such as cut of foreign direct investment, big drop of growth rate and aggregate problem of bad loans in banks.

He said economic policy was an art, not a science. He reminded China that policy changes should be based on expected future inflation not current inflation and it was hard to reach consensus between competing groups, such as industry / agriculture, urban / rural, coastal / interior.

He suggested China could seek an alternative anchor, for example, the euro. That would make the euro area potentially larger than the dollar area. But at the present time, the dollar area is better for China than the euro area.

As for the issue of a single currency in Asia, he said the currency required some political integration and Asian currency area independent of the US dollar depended on the ability of China and Japan to manage a joint float.

Professor Klaus Schwab, executive chairman and founder of the World Economic Forum, gave a talk entitled "10 Challenges Before the World".

Hu Zuliu discussed with visitors whether China's economy can avoid a hard landing. He concluded that China is still in a proper growth rate and all the world should be confident of China.

Besides scholars, some business guests made speeches on trade and securities cooperation, such as Martin Graham, London Securities Exchange director; and Wang Ruidian, Singapore Exchange president.

Graham, who gave a briefing on the corporate and market culture in Britain, compared the differences among Chinese and British market environments. He concluded that a closer cooperation between the British capital market and Chinese businesses would create more opportunities for China to attract world capital.

Wang Ruidian introduced the advantages of Chinese companies listing in the Singapore Securities Exchange over other foreign exchanges in other time zones. He positioned Singapore as an important financial frontier for China and pointed out that Chinese companies there will win more capital investment at lower costs and greater convenience.

The summit will continue tomorrow at China World Hotel with more than four special issues for discussion. A number of top CEOs and business celebrities will share their unique views with audience.